Is an Australian Silicon Valley a realistic goal?

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podcast The question of how Australia could develop its technology startup sector to become more like California’s Silicon Valley is one that has plagued the industry, politicians and financiers for some time. But is this even a realistic idea?

No, according to Sean Kaye, a senior IT executive who has recently started the Startups Down Under blog.

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In an interview this week, Kaye points out no other country has really been successful in mimicking the success of creating a hive of early stage technology companies as Silicon Valley has — apart from Israel, which has developed a culture of rapidly innovating in the security and communications fields, likely due to its position in the middle of contested Middle East ground.

But that’s OK, Kaye says — Australia has other strengths.

“Australia’s a world leader in things like mining and things like construction. Australia is for all intents and purposes the Silicon Valley of those industries,” he says.

Kaye points out that Australian software companies like Aconex — which took a $107.5 million investment from US private equity giant Francisco Partners in September 2008 — had built their success by providing software to Australian construction companies and projects.

Aconex announced a deal several weeks ago that will see it provide software to the Panama Canal Expansion — a massive project worth $3.2 billion in total. “They’re growing internationally at a rate of knots,” says Kaye.

Other examples of local software companies discussed in the podcast which have been able to leverage Australia’s strengths resources software giant Mincom (which coincidentally, was bought out by Francisco Partners in early 2007 for $315 million) and Technology One and Objective, which have strong positions in Australia’s large government sector and are listed on the ASX.

“I think it’s an unrealistic goal to assume that the next Facebook or Twitter could come out of Australia. The sheer volume of numbers means that that’s probably unlikely to happen here,” says Kaye. “But there is certainly a case that web 2.0 startups could happen here with domain-level knowledge and then export that to the rest of the world.”

One problem which still mediates against the success of early stage Australian technology companies, according to Kaye, is the lack of local venture capitalists who are willing to invest in angel-level funding.

“I think the problem we have, is that in pre-venture capital, we don’t have an Angel market. You have a really good idea — and you have to do a friends and family type round,” he says.

Kaye himself is hoping to boost the local tech startup sector through Startups Down Under, which has recently published posts on, for example, the structure of Australia’s Early Stage Venture Capital Limited Partnership company entity and the need for an Australian conference where startups could launch — similar to Jason Calacani’s Launch Conference or the TechCrunch50 in the US.

“It’s something I’m willing to work on personally,” Kaye says — and he’s looking for others to help him get such a conference off the ground.

“If you’re running a startup in Australia, get in touch, go to Startups Down Under, send me a message!” he says.

Image credit: Shlomit Wolf, royalty free

8 COMMENTS

  1. But what would the effect of the NBN be? Australia has a significant presence of global (US and UK-based) media companies, due to language similarities, and our own homegrown media players (Packer, Stokes). We’ve also got some pretty clever small-scale media startups (hello, Delimiter!). If we had world-leading bband infrastructure as well Australia would be a pretty good place for new media / video / gaming startups I would think … ?

    • On the world scale, Stokes and Packer are nobodies…sure, they have a great deal of influence in Australia, but Australia is 22M people – which is only just ahead of one single New York City metropolitan area (19M). We are a pimple on the butt in comparison to economies like the US, UK, and others.

      Without the NBN, we have little chance to change any of that.

    • To be honest, I don’t expect the NBN to really have that big an impact on Australia’s technology startup sector. Most web or IT services simply don’t need really high amounts of bandwidth to be delivered, unless they require streaming video — which most startups don’t do.

      And even then, if you do do streaming video, the YouTube example shows us that it’s possible to do streaming video on today’s infrastructure.

      • Good points all. To clarify, I think what I’m saying is (1) Higher bandwidth by definition brings with it new possibilities for services (I’m thinking mainly content/media, but there’ll be many others), and (2) with an NBN positioning Australia well with regard to bandwidth, and also given our language similarities to North America/UK, we’d be well positioned to develop these new services. I work for a (US based) content producer that is investing millions in digital distribution models. If an NBN gets built in Australia, this would be the ideal place to build and test these solutions, and there’ll be opportunities for Australian companies to do the same

      • I think that most web/IT services not needing significant bandwidth is a product of a lack of bandwidth. One of my hobby projects needs 100Mbps to be useful and I doubt I’m the only one out there tinkering with things that inherently need to push a lot of bits.

  2. Not sure if you listened to the podcast or not, but I mentioned in that Australian Web 2.0 type companies that want to be big players internationally can, because Australia is really part of the dominant western english speaking world. We have an inherent advantage in that regard. The thing is, Australia can be your startup company’s version of “Vietnam”. You grow, expand, take in new customers but rather than looking for continuing growth opportunities, you overestimate the value of “Newcastle” and underestimate the value of Dallas/Fort Worth. Syndey, Melbourne and Brisbane are great proving grounds for your company and business model, but beyond that in Australia, you are talking very small markets.

    Groupon is an example I use a alot when people ask me about this topic. Groupon can happily pick up 25 markets in the US and Canada with plenty of room to grow. Here is Australia, at 25 you’d be starting to talk about Geelong or whatever. Australia has some densely populated centres, big cities that are huge markets, but probably your next targets should be US/Canada and England if you’re very serious about being a large business.

  3. With regards to the NBN, a very contentious issue to say the least, how does it help the startup sector at all? It would give our small consumer base domestically faster access, not necessarily internationally. And if you start a Web 2.0 startup with a global outlook you almost certainly would never host it in Australia, NBN or not. The issue is latency, Australia is simply too far away, you’re introducing hundreds of milliseconds of latency into your app.

    That’s one of the main reasons why there are no services like S3 or Azure here, Australia is not ideally situated – it isn’t a major market and isn’t close enough to major markets, as compared to Singapore and Hong Kong which is where these services end up. Amazon can easily service Australia out of Singapore and at the same time the undersea cables from India and the Middle East come directly into Singapore as well eliminating physical hops.

    I think one area where the NBN COULD help is having an environment that is not bandwidth constrained so companies can be really aggressive with technology. My personal feeling is that this isn’t really an advantage because the logical markets for most things are the US and they aren’t rapidly rolling out anything beyond ADSL2+ no matter how much press FIOS gets, it is insignificant to cable and ADSL2+. The mass market demand simply doesn’t exist yet.

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